Succession planning is a paramount step to the future health of a business. Every business owner should consider creating a succession plan for the reasons below.
A business succession plan is a blueprint for the future of your business. It involves who will take over ownership or run the business after you retire, or if you become disabled, or when you die. A succession plan may include the business’s valuation, formal operating procedures, future leadership structure, and more. The first step for many people in developing a succession plan is determining who will lead the business in the future. Business owners may decide to sell to a co-owner, pass the business down to a family member, or sell the business to an employee or outside party.
In short, anyone who owns or operates a business should have a robust, well-documented succession plan. It’s best to work with an attorney when developing a succession plan because of the complicated nature of the process. Also, the attorney will act as a neutral third party in the development of the plan. Working with a neutral third party is especially helpful when business owners decide to pass ownership to family members.
Every business needs a succession plan to guarantee that operations continue and customers don’t experience an interruption in service. A well-crafted succession plan benefits everyone, including the departing owner, the employees, and the successor.
Business owners who decide to pass the company down to an heir will want to create a succession plan to avoid complications. Determining who will take over, providing clear instructions for the transfer of ownership, and developing a future leadership structure may help avoid a chaotic transition.
Business owners should create their succession plans five years or more before they plan to retire. However, many experts agree it’s never too early to begin planning for the future. Having a plan that details how the business will transition, who will take over ownership, and how partners and heirs will be compensated will help reduce the stressors created by the owner’s departure.